Red tape threatens to obstruct globalisation

New research from the Grant Thornton International Business Report (IBR) reveals that the number one barrier to international expansion reported by businesses globally is legislation and regulations. With the global economic recovery still tepid at best, lowering barriers to trade and foreign direct investment (FDI) could provide a boost to business growth prospects and help the global economy get back on a surer footing.

The IBR asked business leaders what they saw as the major challenges to the international growth prospects of their operations. The issue cited most by businesses around the world was regulations and legislation “nearly one in two (45%) said it was a barrier. This was ahead of finding the right workers (35%), cultural and linguistic barriers (31%), logistics (28%) and access to finance (20%).

And with international expansion increasingly a two-way street between mature and emerging economies, regulations and legislation was cited as the key barrier in North America (50%) and the EU (39%) as well as in Latin America (50%) and the BRIC economies (35%).

Ed Nusbaum, CEO of Grant Thornton International Ltd., said: Dynamic businesses are constantly looking for growth opportunities and expanding into different markets can boost business growth prospects through access to new consumers and new technologies. But mountains of regulations and legislation could prevent businesses considering overseas opportunities.

Clearly every economy in the world has a different business operating environment so moving across borders will create challenges. And strong regulations and legislation can be a good thing, assuming they are designed to drive trade “not drive it away. That regulations and legislation are cited by businesses around the world presents a clear challenge to policymakers.

UK Prime Minister David Cameron recently labelled regulatory reform a priority for the remainder of his parliamentary term, to make it easier for British planning and infrastructure projects to get off the ground “driving business investment and economic growth.

Ed Nusbaum added: Globalisation is no longer simply a case of mature economy businesses looking for low cost labour and land in emerging economies. Increasingly businesses in emerging economies are looking to invest in peers from mature economies in order to access key skills, processes and technologies.

With governments cutting spending, growth rates slow and unemployment rates high in most of these mature economies, the danger is that protectionist regulations are adopted to shelter local businesses. However, investment from higher growth emerging markets might be just the thing to get their own economies moving.

Similarly, many sectors in emerging economies remain closed to FDI. Governments the world over are going to have to demonstrate more progressive thinking to solve the issue of excessive red tape. It might mean more cross-border collaboration, but it should also mean engaging more with business leaders who are dealing with the issues every day."

These findings are drawn from the 2012 Grant Thornton Emerging markets report, which also ranks the 27 largest emerging economies in terms of the opportunity they offer for business investment using a range of economic indicators. As with the 2010 report, China tops the index, followed by India and Russia. Brazil has moved above Mexico into fourth place. The biggest movers include the ˜frontier economies of Indonesia, Chile, Nigeria and Peru.

IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 3,500 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted between November and December 2013.